Vale : Brazil Miner Vale Grows Weary of Nickel

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07/27/2017 | 07:44pm CET

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By Paul Kiernan

RIO DE JANEIRO -- Brazilian mining giant Vale SA, the world's largest producer of nickel, signaled Thursday that it will stop betting on a recovery in prices for the metal after such hopes failed to materialize in recent years.

Chief Executive Fabio Schvartsman, who took the helm of the company in May, said Vale's nickel investments in recent years haven't paid off because they were based on unrealistic price expectations.

"Every one of Vale's nickel production facilities will have to work on the assumption that current prices will remain for a long period of time, " Mr. Schvartsman said in a conference call with analysts. "In other words, Vale will stop making investments thinking that the price of nickel in the future will be much higher than at present."

Vale has long anticipated an upturn in the nickel market, which peaked in 2007 and never recovered. In late 2014, when prices were around $16,000 per metric ton, Mr. Schvartsman's predecessor, Murilo Ferreira, told investors that prices would likely rise "substantially" higher than Vale's $21,000 forecast for the coming year. Instead, prices went the other way, and nickel is currently trading at less than $10,000 a ton.

The change in strategy could result in an eventual shutdown of Vale's money-losing nickel operation in the French territory of New Caledonia. Until Mr. Schvartsman took over, the company had been implementing a four-year project to ramp up production on the South Pacific island from 34,300 metric tons of nickel -- about 11% of Vale's capacity -- to 57,000 metric tons.

But the operation has been troubled in recent years by regulatory issues, such as stricter environmental laws, and operational problems, such as an acid leak in 2016. In its annual report, Vale said its reserves in New Caledonia wouldn't be economically viable at the average nickel price over the past three years. It took a $284 million impairment charge on the operation in 2016.

"If the other alternatives are exhausted and we don't find any way to permit a sustainable operation, I think our obligation is to face the question of shutting down," Mr. Schvartsman said.